State Net Capitol Journal – May 6, 2013

Budget & Taxes

AK GAMBLES ON OIL TAX CUT: A domestic energy production boom has put the United States on track to become the world's biggest oil producer by the end of the decade. But Alaska, once the nation's oil king, is getting left behind in that expansion, due largely to declining production on its North Slope.

In an effort to halt that trend, the state's Republican-led Legislature approved a major tax cut for oil producers on the last day of the session last month.

Under the plan (SB 21), oil companies will be taxed at a flat rate of 35 percent, with a series of incentives potentially driving that rate effectively as low as 14 percent. The scheme replaces former Gov. Sarah Palin's progressive tax structure, which began at 25 percent and went up to 50 percent when oil prices were high.

The overhaul was considered a major victory for Gov. Sean Parnell (R), a former ConocoPhillips lobbyist, who'd been trying for years to get the change.

"We are signaling to the world that Alaska is back, ready to compete, and ready to supply more energy once again," the governor said.

Oil producers also welcomed the change.

"This is Alaska's most important decision in the last half of the century," said Dan Donkel, owner of Donkel Oil and Gas.

But critics say the plan is a gift to Alaska's "Big Three" oil producers - Exxon Mobil, ConocoPhillips and BP - which have an outsized influence on the state's citizen Legislature, a governing body that includes two senators who moonlight for ConocoPhillips. The critics also say the tax cut will do little to increase production while starving the state of revenue.

"It effectively gives away Alaska's oil," said Ray Metcalfe, a former Democratic legislator who is leading a campaign to allow Alaskans to vote on the tax break in 2014. (STATELINE.ORG, STATE NET)

STATES COOLING ON RENEWABLE ENERGY: States' recent passion for renewable energy appears to be running out of steam. Sixteen of the 29 states with renewable portfolio standards are considering legislation that would scale back those mandates, according to the North Carolina Solar Center, a partnership between the U.S. Energy Department and North Carolina State University.

"Activity against renewable portfolio standards has been increasing in the past year," said Justin Barnes, a senior policy analyst at the Solar Center. "There haven't been any outright repeals yet, but we've seen some watering-down."

North Carolina legislators began debating a bill in March that would cut the state's current renewable energy target for utilities'- 12.5 percent by 2015 - in half and then eliminate the requirement altogether in 2021. Colorado's senate passed a bill last month that would actually increase the amount of energy utilities have to obtain from renewable sources but also expand the definition of renewable energy to include sources such as methane produced from coal mining. Connecticut, likewise, is considering including large hydroelectric plants in its definition of renewable energy.

"Connecticut has thrown up the white flag on its ambitious renewable targets, and is now negotiating its terms of surrender," said Nick Culver, an analyst at New Energy Finance in New York. "Instead of simply easing back targets, they intend to widen eligibility criteria to include imported hydropower from Canada that would have been built regardless, which amounts to pretty much the same thing."

The arguments in favor of such proposals tend to be about cost, with the lower price of natural gas brought by the rise of hydraulic fracturing having made more expensive solar and wind power projects less appealing.

"We could never have imagined in 2007 such an abundance of domestic natural gas," said North Carolina General Assembly Majority Whip Mike Hager, who introduced his state's renewable-energy scale-back legislation, which he expects to pass the GOP-controlled Legislature and be signed by Gov. Pat McCrory (R) this year. "We need that Marcellus shale gas to offset the high cost of renewables and prevent electricity prices from rising further. It's like raising children: they need to grow up and learn to live in the real world."

Renewable-energy companies like SolarCity Corp., the San Mateo, California-based rooftop energy developer, see the real world a little differently.

"Whenever you see [an anti-renewable energy] effort, peel the onion and find out who's behind it," who's funding the effort, said SolarCity CEO Lyndon Rive. "It's very annoying that people can get away with the shell efforts and call it the people's voice when it's funded by coal."

Rive likely counts Hager among that group of annoying people. The North Carolina majority whip's top campaign donors include utility company Duke Energy and the Charlotte, North Carolina-based utility owner's Progress Energy (PGN) unit, according to the National Institute on Money in State Politics.

Backers of efforts to repeal clean-energy goals in other states include the American Legislative Exchange Council, which released model legislation aimed at doing so - the Electricity Freedom Act - in October, and the Heartland Institute, prompting Carrie Hitt, vice president of state affairs for the Washington-based Solar Energy Industry Association, to remark: "This is a deliberate campaign by conservative think tanks, the Heartland Institute and Alec to overturn renewable energy policy that threatens the fossil industry."

But Todd Wynn, task force director for energy at Alec, said: "Natural gas is a clean fuel, and regulators and policy makers are seeing how it's much more affordable than renewable energy." And in an April 2 policy statement, the Heartland Institute said North Carolina's renewable energy requirements will have cost state ratepayers as much as $1.8 billion by 2021.

"Repealing the North Carolina renewable portfolio standard would help increase disposable income, attract more business investment, and make energy more affordable for consumers," the statement said. (BLOOMBERG, HEARTLAND INSTITUTE, DSIREUSA.ORG, STATE NET)

ACA COULD COST BUSINESSES IN NON-EXPANSION STATES $1.3B PER YEAR: The Affordable Care Act requires companies with more than 25 employees to pay a "shared responsibility" fine of $3,000 for each worker who isn't eligible for Medicaid and who receives a federal tax subsidy because their employer doesn't offer them health insurance. The provision was intended to induce small businesses to provide such insurance.

Analysis by Brian Haile of Jackson Hewitt Tax Service, however, found that for the 22 states that have opted out of the Medicaid expansion prescribed by the ACA - but made optional by the U.S. Supreme Court - the "shared responsibility" bill for small businesses could run as high as $1.3 billion per year.

Consequently, the National Federation of Independent Businesses is seeking an exemption from the fines from the Internal Revenue Service.

"A business should not face expensive penalties for state and regulatory decisions beyond their control," the organization said in a March statement to the IRS. Without the exemption, "increased penalty liability could cause a more rapid erosion of employer-sponsored health insurance and increased costs to federal taxpayers," the group stated. (STATELINE.ORG)

BUDGETS IN BRIEF: The 43 states with lotteries made more than $19 billion in profits last year, the bulk of which came from instant scratch-off tickets. Of the $4 billion in lottery sales in TEXAS, for example, about $3 billion, or 74 percent, came from instant ticket sales (STATELINE.ORG). • Gaming magnate Steve Wynn told NEVADA Gov. Brian Sandoval (R) and lawmakers last week that the state's gaming industry is not in a "healthy" condition and that future industry growth would likely occur elsewhere. Democratic lawmakers who control the state's Legislature have been planning legislation to increase a variety of taxes, which is expected to be blocked by Sandoval and his fellow Republicans (LAS VEGAS REVIEW-JOURNAL). • In other negative news, NEVADA reclaimed its position as the state with the highest jobless rate in the nation in March, at 9.7 percent. CALIFORNIA and RHODE ISLAND had bumped the state from that spot in February (STATELINE.ORG). • FLORIDA lawmakers agreed last week to give state workers making less than $40,000 per year a $1,400 pay raise and those making over $40,000 a year a $1,000 raise. The pay hikes are the first for the state's 160,000 public employees in seven years (MIAMI HERALD). • MISSOURI's GOP-controlled Legislature is reportedly poised to pass legislation that would cut the state's income tax and raise the sales tax. But Gov. Jay Nixon (D) said he will veto the bill (STLTODAY.COM). • INDIANA Gov. Mike Pence (R) and legislative leaders reached a budget deal last month that will cut the state's personal income tax rate by 5 percent over the next four years while increasing school funding by about $330 million over the next two years (COURIER-JOURNAL, STATE NET). • CALIFORNIA retiree health costs have risen 45 percent over the last half-decade, according to analysis by the non-partisan, non-profit group California Common Sense (CACS.ORG). • Despite last-minute lobbying by eBay Inc. and others, the U.S. Senate voted last week to allow debate on legislation that would permit states to compel out-of-state merchants to collect sales tax from their residents. The proposal still faces obstacles in both the Senate and House, with a final vote in the Senate unlikely until early May, when the chamber reconvenes after a weeklong recess (WALL STREET JOURNAL). • OHIO foregoes about $7.7 billion in revenue each year because of tax breaks, some of which have been in place for decades (COLUMBUS DISPATCH).

- Compiled by KOREY CLARK

The above article is provided by the State Net Capitol Journal. State Net is the nation's leading source of state legislative and regulatory content for all states within the United States. State Net daily monitors every bill in all 50 states, the District of Columbia and the United States Congress - as well as every state agency regulation. Virtually all of the information about individual bills and their progress through legislatures is online within 24 hours of public availability.